The VAT reverse charge was due to come into effect on October 1, 2019 but HMRC say changes have now been postponed until 2020.
Accountancy and business advisory firm Johnston Carmichael examines the implications for construction firms across the UK.
Nigel Roberts, VAT Director and Head of VAT & Duty, said: “HMRC has today announced that the introduction of the construction industry VAT reverse charge, due to come into effect on 1 October this year, has been postponed for 12 months.
“This will be hugely welcomed by the sector – the new rules would have had a massive impact on cash flow for many smaller contractors and required considerable investment in new accounting software to administer. If the changes where to go ahead this year, they would have created a huge headache at a time when construction is already under pressure and dealing with the uncertainties arising from Brexit.
“This is great news for the construction sector. The reverse charge rules are extremely complicated and many of the business affected were unaware that they were due to start in less than a month or the impact they would have on working capital and accounting systems.
“Many within the sector and in the tax community have argued strongly for a deferral. The announcement, although coming very late in the day, will create a breathing space at a time when many other factors are bearing down on construction businesses and allow time for a more measured implementation.”